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Effect of mandatory pro forma earnings disclosure on the relation between CEO share bonuses and firm performance

Chii-Shyan Kuo, Jow-Ran Chang () and Shih-Ti Yu

Review of Quantitative Finance and Accounting, 2013, vol. 40, issue 2, 189-215

Abstract: This paper examines the effect of mandatory pro forma earnings disclosure on the alignment of CEO share bonuses and firm performance (i.e., annual stock returns). Using 6,583 executive-level observations from 986 non-financial firms in Taiwan over the period 1999–2004, we find a significant shift in the CEO share bonus pay-earnings relation caused by a marked reduction in bonus shares after the new disclosure rule becomes effective. The change in CEO compensation structure in turn leads to a closer link between CEO stock bonuses and annual stock returns. The result suggests that a more transparent earnings disclosure could positively affect board choices regarding compensation arrangements, thus inducing a better convergence of manager and shareholder interests. Copyright Springer Science+Business Media, LLC 2013

Keywords: Stock bonus; Pay-performance relation; Pro forma earnings; CEO compensation; J31; M41 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s11156-011-0272-x

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